Connect with us

Hi, what are you looking for?

Right Decision NowRight Decision Now

Business

New VAT system will be fairer but more complex

HMRC’s new penalty regime for late filing and late payments of VAT will be fairer but more complex with interest being charged on all late payments.

Alan Pearce, VAT partner at the Blick Rothenberg, said : “HMRC is introducing a new penalty regime for late filing and late payments of VAT for returns commencing on or after 1 January 2023. Which all businesses that are registered for VAT need to be aware of.

The new regime will be fairer to businesses by penalising those that persistently file and pay late, rather than those that make the odd slip up. It will replace the current default surcharge regime that has been widely criticised for levying significant penalties where payment is only one day late. However, unlike the current regime, there will be a more complex multi-tier penalties system with interest also being charged on all late payments.”

The new regime will effectively have four different types of charges; a fixed penalty amount for late filings based on a points system (a similar concept to totting up points for driving offences); an initial two-part fixed rate penalty for late payments of 2% and 4% (applying to the first 15 and 30 days); an ongoing 4% daily interest-based penalty (applying after 30 days) and interest charged at 2.5% above the Bank of England base rate (applying from the outset).

“The new penalty regime is more complicated than the current default surcharge regime. However, it appears to be fairer to those businesses that might occasionally pay late and rewards those that do their best to pay outstanding tax as early as possible. Under the current rules businesses are often hit with large surcharges of between 2% and 15% for simply being one day late. This can often be caused by a one-off administration error or banking delay.

The change should therefore be welcomed and should avoid the need for many default surcharge appeals where the amount of the penalty is disproportionate to the amount and timing of the late payment. Alan said: “For many defaulters, the new rules will result in a relatively small penalty and interest having to be paid.

However, for businesses that persistently fail to submit their VAT returns on time and are frequently more than 30 days late in paying, they will suffer the highest level of penalties and interest. It seems that HMRC have struck a balance of penalising serial offenders more heavily while incentivising compliance and being more lenient on those that make the occasional slip up.”

“Furthermore, HMRC has announced it will apply a “light touch” for the first year of operation. Specifically, where a business is doing its best to comply, HMRC will waive the first 2% fixed penalty for VAT periods up to the end of 2023. This effectively means that provided payments is received within 30 days of the due date (or, during this period, an approach to HMRC has been made for a time to pay application) penalties can be avoided. However, even where agreement is reached with HMRC, interest will still apply.”

Read more:
New VAT system will be fairer but more complex

    You May Also Like

    Business

    The head of the International Monetary Fund has warned of increased risks to the stability of the financial system after weeks of banking sector...

    World News

    BEIJING — China landed an uncrewed spacecraft on the far side of the moon on Sunday, overcoming a key hurdle in its landmark mission...

    World News

    LONDON — Talks aimed at reaching a global agreement on how to better fight pandemics will be concluded by 2025 or earlier if possible,...

    World News

    SINGAPORE — Ukrainian President Volodmyr Zelensky’s unscheduled appearance at Asia’s biggest security conference dominated proceedings on Sunday after China’s defense chief slammed “separatists” in...

    Disclaimer: rightdecisionnow.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 rightdecisionnow.com | All Rights Reserved